Sunday, 20 July 2014

Not long ago, Mark wrote a post on the myth that building more houses would bring down prices. However, this is a very persistent meme, one which I've come across twice in the first half of the latest copy of Moneyweek, and the contributors to Moneyweek usually have the right idea about matters to do with land. The second mention was in an abstract of an article by Robin Harding in the Financial Times, which, having started off by identifying the huge transfer of wealth from renters and recent buyers to existing homeowners and sellers, then goes on to attribute entirely to planning restrictions.

Now this may be the same effect as noticing that suddenly, a lot of other drivers seem to have just bought the same model of car as you. However, I think there is more to it than that. There is huge power in getting an idea into the public consciousness, embedded so that it becomes a prejudice, i.e. that it is pre-judged to be correct and no longer exposed to any logical criticism, just accepted as a truth. We can see this process with LVT and the drip, drip, drip of "killer arguments against" spotted and exposed for their utter illogicality in this blog to zero wider effect. The process both is propagated by and propagates the meme, like a sort of fast-breeder reactor. Unsurprisingly, given its effectiveness, this process has been widely used by politicians, pressure groups and vested interests, the demonisation of fat in our diets and the man-made global warming theory being a past and a present example.

Although it is likely that a lot of the commenters on matters to do with land taxes are actually shills for the banks and Big Land generally,there is actually no need for them to do this. The idea that LVT is a bad idea is such a foregone conclusion for many that all the comments could be from people who are who they say they are, just as it is unlikely that Robin Harding is simply trotting out the Homeownerist line, given the thrust of his article.

On the same page in Moneyweek, there is a piece from the Spectator suggesting that wave and tidal power is a waste of time and that the DECC would be better off pointing its subsidies towards solar and wind energy instead of wave and tidal power. This is not an idea I've come across before, but considering that subsidies to solar and wind power benefit landowners and subsidies to wave and tidal power don't, then could we be seeing the birth of another meme?

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comments:

«the huge transfer of wealth from renters and recent buyers to existing homeowners and sellers, [ ... ] LVT and the drip, drip, drip of "killer arguments against" spotted and exposed for their utter illogicality in this blog to zero wider effect.»

Ironically the above embodies *the* killer argument against LVT: switching to LVT would most likely stop the «huge transfer of wealth from renters and recent buyers to existing homeowners and sellers», and British swing voters in marginal seats think it is a terrible idea.

Because "renters and recent buyers" are usually young, male, Northern and "existing homeowners and sellers" are usually old, ladies, Sourthern, and the only marginal seats are in the South, and in general older, female voters outnumber younger, male ones anyhow.

LVT is completely unacceptable to swing voters in marginal Sourthern seats precisely because it would affect their ability to redistribute income and wealth to themselves.

The killer argument against LVT is that it is electoral suicide.

Note: how many local councils in the South have updated house valuations used for council tax over the years? If merely updating the valuations used for a well established tax is political suicide, what are the chances for LVT?

Logically then, destroying arbitrary amounts of housing would have no effect on house prices either. You bulldoze half of London, prices stay the same. You knock down until there's just one street in Chiswick left, surrounded by parkland. No effect on prices.

B, that depends how many people vote for a "minor" party seriously proposing LVT. Then the seats with a long of younger, working, tenant and recent purchaser households become the new marginal seats and marginal voters and the "established" parties have no choice but to change their tax policies.

It's the same with UKIP and the larger parties becoming a bit more EU-sceptic. A party can have influence without power.

IB,if you did that, then quite clearly, prices in London would fall. If there were just one street in Chiswick surrounded by hundreds of square miles of farmland, it would be worth a fraction of what it is now.

And people would move to other large towns and cities in the UK (or elsewhere in the world) and so prices there would go up.

Remember = land values are a function of how many other people and businesses and amenities you have access to, in terms of miles travelled or time taken.

So building more in London/south east actually pushed up values in L/SE and prices in emigration areas (rest of UK) would fall.

More supply only leads to fall in prices if there is crass oversupply and plenty of vacant homes, which is economically nonsensical.

When I was a young man, building societies ruled the mortgage market. It was their rule to lend no more than twice the annual salary/wage of the husband ( nett of any overtime or bonus) and to insist on evidence of thrifty habits by requiring a deposit - usually 10 per cent of the purchase price.

Now banks will advance 4.5 times the combined salary of husband and wife ( or "partners") .

That is what has "created" the wealth plus the willingness of the punters to go head over heels in unrepayable debt - unless inflation is guaranteed and the government is keen to boost the profits of the builders who were political donors to their party.

Yes, more agglomeration causes higher rents, ok, but that's a secondary effect! Locally, in the short term, prices are receptive to increased supply. Ofcourse the focus on supply is a diversion, but I don't agree with brushing it away either. If supply doesn't matter, NIMBYism has zero effect, and we can join hands in green-belt kumbaya.

"Locally, in the short term, prices are receptive to increased supply"

Your evidence for this would be interesting to view. Here in the UK, the period of the greatest supply of new housing (the 60s and 70s) coincided with the period of the greatest price rises. Similarly, in Ireland and Spain, you'd think the developers would have been giving the houses away rather than let them stand empty, but no, it was the other way round: they'd rather let them stand empty than lower the price below the "going rate".

B: is that really true though, did prices to income grow in that period of increased supply? Whether that's true or not, you are still looking at a picture that includes the secondary effect on house-prices caused by agglomeration and wage-growth. What if this was actually caused by supply in growth areas keeping up with influx? I thought rent controls did it's work as well back in the day? Yes, the Irish and Spanish examples are of the lack of supply inducement, but you can't drag them along all the time either, ghost estates are not that common.

Back to the 60s and 70s; if we are to believe that the baby-boomers are reaping now from picking up cheap housing back in the day (pre-80s), that doesn't square with your claim that this period had those kind of price rises, at least not that outpaced income.

Re Ed Spalton's remarks .Does anybody know the stages and specific policy changes that led the banks (with their high leverage) taking over from the building societies as the providers of mortgages? After which chaos ensued. The political interference with public sector affordable housing provision is better documented.It would be useful to have some names, dates and enactments to counter the assumption that the present disaster with mortgage provision evolved naturally.Evidence such as Ed Spalton presents of an age of low house prices and more intelligent arrangements is always frightening in showing how badly adrift we are now.

Kj, I wrote a long reply to your comment and Blogger ate it. I can't face doing it again, sorry, but basically Q1 yes, Q2 probably not, due to even distribution across the country. Q3 Dunno. Ireland and Spain are the best, not the only examples.